Payday lenders have attracted plenty of vitriol over the last few years, thanks to sky-high interest rates and questionable lending practices.
Last night’s ITV documentary Cash in Hand! Payday Loans gave us a look into life inside a payday lender on the debt collection team, where staff have to balance treating struggling borrowers fairly with their own targets, and subsequent bonuses.
Uncle Buck is not one of the industry’s biggest names, but it still hands out 12,000 loans a month. That equates to about £2.4 million of loans.
And while 90% of them are repaid on time, the 10% that don’t will get a call from the collections team, who will look to put together “an affordable repayment plan”.
It’s not always the most comfortable watch. The Uncle Buck collections team get all sorts of abuse from borrowers who are behind on their loans, some of whom have not actually repaid a penny of what they borrowed. It's quite clear that a number of them never had any intention of paying the loan back either.
So what happens if you are one of those borrowers who can’t pay? What are your rights? And what can a lender do if you can’t pay?
Last year new rules were implemented for payday lenders to ensure that not only do they not lend at extortionate prices, but also that they treat struggling borrowers fairly.
Regulators acted after they uncovered significant problems with the way payday lenders were behaving. For example, in June last year Wonga was forced to hand out compensation of more than £2.6 million because of its “unfair and misleading” debt collection practices.
The following month The Money Shop was forced to hand back £700,000 in charges to thousands of borrowers who were able to borrow more than the maximum under its own lending criteria.
And then earlier this year Cash Genie agreed to pay a whopping £20 million to customers after it admitted to unfair practices, including charging questionable fees and rolling over loans without the consent of the borrower.
What does a lender have to do?
When you take out a payday loan, it will generally be paid back via a continuous payment authority (CPA). This essentially allows the lender to take the money directly from your bank account. And if there isn’t enough money in the account, there will be charges added for late payment.
These charges could quickly become very significant. But the new rules mean a lender cannot use the CPA more than twice if they have not been able to get the money from your account, nor should they try to take a part payment.
There are now interest caps in place too, of 0.8% per day of the amount borrowed. So for a typical loan taken out over 30 days and repaid on time, you should not be charged more than £24 per £100 borrowed. Default charges are capped at £15 too.
I’m struggling to pay the loan back
If you are having issues paying the loan back, you need to speak to your lender as soon as possible.
You can then work out a way to pay the loan back. This may mean the lender freezes the interest on your loan or suspends further charges, or even suspends recovering the debt itself for a reasonable period if you are working out a repayment plan with a debt adviser. The lender is required by law to work with you to find a solution to your debt.
As the documentary makes clear, the art of working out a repayment plan is finding a figure that the borrower can afford and which won’t hurt their overall financial position.
You should also get some free debt advice from places like StepChange Debt Charity, National Debtline or Citizens Advice.
Complaining about a payday lender
If you don’t feel that your payday lender is treating you fairly, then you should complain directly to the lender. If they don’t resolve the issue to your satisfaction, you can then take the complaint to the Financial Ombudsman Service.
The Ombudsman is an independent complaints arbitrator which can force lenders to pay you compensation if it feels you haven’t been treated fairly. In its annual report back in March it revealed that it had received 1,157 payday loan complaints in 2014/15, up by 50% on the year before, with 64% of complaints upheld.